The world number 26, Kashyap, who had qualified for the London Olympics at the last moment during the India Open Super Series in New Delhi, defeated Chen, ranked third, 21-17 21-14 in a 45-minute match in the men's singles event.
He will next take on Hans-Kristian Vittinghus of Denmark in the quarterfinals tomorrow.
Earlier, fifth seeded Saina survived a scare from world ranked 46th, Aprilla Yuswandari of Indonesia before beating her 21-17 14-21 21-13 in a match that lasted almost an hour in the women's singles competition.
The world number five Indian, who was the runners-up in the last edition, will next take on third seed Chinese Shixian Wang, who got the better of Juan GU of Indonesia 21-12 21-11 in another match.
Saina, who clinched the title twice in succession in 2009 and 2010, holds a 2-1 record against Shixian and had beaten the Chinese in the final of the Swiss Open Grand Prix Gold to clinch her first title of the season in March.
Kashyap rode on his smashes and better net play to outwit the Chinese.
The Indian had pocketed 26 smash winner and accumulated 14 points from the net. Chen, in comparison, had 21 smash winners and only seven net winners.
In the first game, after conceding a narrow 1-4 lead, Kashyap clawed back at 8-8 and kept his nose ahead to pocket the game.
Chen, who had a 3-1 record against Kashyap before today's match, once again opened up a narrow 4-2 lead in the second game but the Indian fought back to catch up with Chen at 9-9 and then moved in giant steps to seal the issue.
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